Shakeouts Gathering Steam in Global Chemical Industry

Realignment is heating up in the global chemical industry. While two Chinese state-run chemical companies may be merged into the world's biggest manufacturer, the industrial gas and paint industries are witnessing a series of moves to create giant companies.

An analysis of recent mergers and acquisitions that have resulted in new members of the industry's so-called "3-trillion-yen ($26.5 billion) club" shows that U.S. and European chemical makers are trying to boost profitability with focused use of management resources, while Chinese companies are seeking to absorb whatever assets they deem necessary.

Japanese chemical makers, which wrapped up the release of earnings reports for fiscal 2016 on Tuesday, are the focus of attention for their strategies to cope with global industrial shakeouts.

Random M&As by Chinese

China National Chemical, known as ChemChina, is the "eye of the storm" in recent M&A trends involving chemical companies, an executive of German chemical maker Bayer said.

ChemChina reached an agreement with Syngenta of Switzerland in February 2016 to acquire the world's largest maker of agricultural chemicals. The $43 billion deal will be the largest acquisition of an overseas business by a Chinese company.

The deal is at the final procedural stage, as Syngenta shareholders approved it at their general meeting. Combining Syngenta with Adama Agricultural Solutions of Israel, the world's largest manufacturer of generic crop-protection chemicals, ChemChina will emerge as a key player in the world markets for agricultural chemicals and seeds.

ChemChina is now taking aim at the domestic industry as the next target of its aggressive strategy.

Word circulated in October last year that ChemChina and another state-run Chinese chemical maker, Sinochem Group, would integrate their management. Although the speculation subsequently subsided, the British economic daily Financial Times said on May 8 that ChemChina and Sinochem are planning to merge this year, suggesting that merger talks between them have continued behind the scenes.

Combined sales of ChemChina and Sinochem are roughly $100 billion, much larger than the 57.5 billion euros ($63.74 billion) chalked up by BASF of Germany, currently the world's biggest producer of chemicals, in the business year ended in December 2016.